Note For Labour Region 1 Economic Policy Group:
The Covid-19 crisis has brought about changes to the world that could be as far reaching as the epoch transformations that are associated with world wars and revolutions. New Zealand is likely to face double digit unemployment and a drop of around 20% of GDP, according to some commentators. Borders throughout much of the world are likely to be closed or restricted for the next 1-2 years. Air travel and tourism will be significantly reduced, but impacts will be felt throughout the economy. Internationally, supply chains will become shorter, diversified and more expensive. According to Kevin Rudd, the United States will continue to decline as a world leader but China will not automatically step up (Rudd). While the New Zealand economy will be different post-Covil-19, it will not necessarily be an epoch transformation.
There are broadly three choices facing New Zealand. First, a Business-As-Usual option based on the dominant model of the last four decades. Second, an option that focusses on the climate crisis that directs investment accordingly. The third option sets in place endeavours that enable us to live with the planetary boundaries that we are currently ignoring to the detriment of our ecological life systems, and prepare us to adapt to the environmental disasters that are coming.
Option One - Business-As-Usual
The dominant theoretical model during the last four decades has been one where governments played a smaller role and the market was the prime mechanism for the allocation of goods and services and innovation led growth. The problems with this include (Howell, 2016):
- the neoclassical economist model has basic flaws (particularly it excludes the financial sector from its model) that does not allow it to understand and predict economic behaviour;
- it ignores the lessons from the last three decades in New Zealand where basic services were run into the ground leading to widespread poverty;
- it is not based on modern science or modern ethics;
- it ignores the evidence that the public sector plays in innovation and economic advancement, and the provision of essential goods and services.
I say ‘theoretical model’ because in practice this model was never practiced. In effect the multinationals and elites twisted the model to their advantage through government subsidies and handouts, tax avoidance, the minimisation of effective competition, and the capture and corruption of the democratic process.
Some mainstream economists see the current crisis as a 1-2 year disruption before returning to previous practice with small governments, minimal tax, and a dominant market (RNZ). The catastrophes that a 2 degree C climate warming will bring will be more severe that the current Covid-19 catastrophe, and Option 1 ignores the science.
Option Two- Focus on Climate Change
This option directs investment towards environmental protection and repair, and socially beneficial programmes that provide adequate safety nets for people through job creation and welfare benefit schemes. Many Green Deal proposals would come under this Option.
Apart from the emergency short term support packages, the Government will be starting to invest in major infrastructure programmes. On May 3 David Parker announced that legislation will be passed in June.
Both private and public projects would be eligible for the fast-tracked process such as roading, walking and cycling, rail, housing, sediment removal from silted rivers and estuaries, new wetland construction, flood management works, and projects to prevent landfill erosion. … Projects that helped alleviate housing challenges, encouraged active transport and enhanced the environment would be prioritised, Parker said. … Under the new powers resource consent decisions for large projects would not go to council and public input would not happen. Instead, a panel of experts chaired by an Environment Court judge would determine whether a project could be given the green light, he said. … Most people realise that the world is entering into the worst recession in 100 years as a result of Covid-19.
Although the projects will have both social and environment benefit, it is not necessarily a new economy.
Option Three- Live Within Planetary Boundaries
The limits to growth (Howell April 2020), the planetary boundaries (Stockholm Resilience Centre) and the arguments from ecological economists such as Boulding, Daly, Raworth, and Jackson, indicate that while the adoption of shovel ready projects and programmes are an important step towards a resilient future for New Zealand, they are not sufficient. We need to move to an economy based on the principles of living within the capacity of the Earth to support human life. The Global Footprint Network states that today humanity uses the equivalent of 1.75 Earths to provide the resources we use and absorb our waste. This means that we need to vision a new economy and a path towards it that involves widespread discussion and acceptance of why we need to change and how.
This Option will be an epoch transformation. It will involve considerable public education and support for a Government to remain in office long enough to make the changes. There will be considerable resistance from multinationals and elites. Because of the international support for Option 1 yet with a growing support for Option 2, I personally do not see Option 3 being adopted in time to avoid major ecological and economic destruction and degradation. Nevertheless, we should keep trying and there are a number of steps that can be taken to prepare for a difficult future that involve both mitigation and adaptation.
1 Prepare a budget that is based on what needs to be done to reduce carbon emissions, and then develop and adopt a plan that reconciles this with our money economy.
In the Wise Response Submission on the Review of the Crown Minerals Act it was stated that we probably already are at 1.5 degrees C. To remain at 2.0 degrees C, using IPCC estimates the remaining budget ends up being 890Gt. Regarding a budget for NZ, when the 2 degree C global budget is distributed equally on a per capita basis, a budget for New Zealand amounts to 593Mt, which would be exhausted in 15 years at a constant current rate of 40Mt/an.
The Climate Commission should be producing such a budget.
1a) Connect the Money Economy with the Ecological Economy. All banks and financial institutions (ie shadow banking) both public and private should only provide loans however created which fit within this emission budget.
Much could be said here, so only some brief comments. First, there is most probably around 10% of both sovereign wealth and private investments that are socially and environmentally sustainable (Howell 2017). Second, pension funds have significant investments: in 2018 assets in pension funds in OECD countries constituted 53% of GDP (OECD). Third, despite the overwhelming amount of scientific evidence about the consequences of human impact on the Earth’s ecological systems, international and the majority of national decision-making processes have not made significant changes to the financial institutions that control our money systems. The largest bank in the US, JPMorgan Chase has been a big financier of fossils fuels (Economist). The financial sector is politically very powerful. For example, Bernard Lietaer states that in 2010 for every elected official in Washington there were 3 high level lobbyists working for the banking system. Varoufakis has described the influence of French and German banks in the decision to force unserviceable loans on a bankrupt Greece.
I believe that until major reforms are made to the banking and investment systems, the changes that scientists argue for protecting the Earth will not occur. Real growth has encountered the biological and social limits of a full world. Financial growth is pushing uneconomic growth. In the majority of Western countries, the banking system has a fractional banking system where money is created by private banks when loans are given. Daly and Wolf argue that we should remove fractional banking (ie move to 100% reserve and lend from savings accounts).
2 Social and Environmental Evaluation
Set up a Government Agency to set standards, measure and assist in preparing and implementing plans for all organisations (Government, Private and Civil Sector) to transition from a damaging ecological footprint to a resilient one. This evaluation could start with Treasury’s Living Standards Framework and Sustainable Development Goals. There are important gaps in this framework which require urgent remedy. What goes for many responsible investment measures is inadequate, hence the need for proper validated standards (Howell, March 2020)
2a) Immediate Steps All proposed expenditure including shovel projects, (apart from short term immediate relief), should be subject to comprehensive economic, social and environmental review and annual reporting.
Immediate to Medium to Longer Term Steps
- All organisations employing 20 employees or more in the public, private and civil society
sectors are required to undertake a social and environment impact assessment which
is publicly reported and audited annually.
- A fund will be established to pay for advisors to facilitate this process.
- This will not be mandatory for small organisations initially, but extended to cover them
when appropriate templates and processes have been developed.
3 Establish a Minimum Income Standard and Link it to the Climate Budget. A sustainable economy can only be successful if both environmental and social policies (eco-social policies, defined as policies that pursue both equity/justice and sustainability/sufficiency goals) are integrated. This involves describing basic living standards and an income to meet these. Gough in Heat, Greed and Human Need states that equity, redistribution and prioritising human needs, far from being diversions from the basic task of decarbonising the economy, are critical climate policies.
In defining necessities, Gough describes the UK Minimum Income Standard study: 12 focus groups were tasked with producing lists of items that households would need to reach an acceptable minimum standard of living. If the whole of the UK were living on a decent life budget, there would be a likely drop of 37% of consumption based emissions. This equates to 7.3 tonnes/person. Studies in Finland and some evidence form Sweden replicate similar findings. In the UK the critical basic goods of home, energy and food (together equalling about 40%) are carbon intensive. Hence Gough proposes a ‘deep learning journey’ going beyond longer-term and community based projects, such as is found in eco-villages and transition towns (Howell, Nov 2019).
It is important that New Zealand describe basic living standards and the income to support those standards, and align these with ecological limits.
4 Establish a Wealth Tax and Enforce a Tax Avoidance Programme.
The jet-setting habits of celebrities such as Bill Gates, Jenifer Lopez and Paris Hilton mean that they produce an astonishing 10,000 times more carbon emissions from flying than the average person (Gossling). In World Scientists’ Warning of a Climate Emergency, it is stated that the climate crisis is closely linked to excessive consumption of the wealthy lifestyle. The most affluent countries are mainly responsible for the historical GHG emissions and generally have the greatest per capita emissions. Our goals need to shift from GDP growth and the pursuit of affluence toward sustaining ecosystems and improving human well-being by prioritizing basic needs and reducing inequality (Ripple).
The need for an introduction of a robust tax avoidance programme is so obvious that it does not require any further justification.
5 Prepare a Disaster Plan
Learn from the experience of the former Australian Defence Department's director of preparedness and mobilisation, Ms Durrant. In 2019 she commissioned a landmark review of Defence planning to prepare for what the department concluded was an increasingly likely global crisis. They saw three main possibilities of that happening: the increasing and escalating effects of climate change and natural disasters; a global power conflict, probably between America and China; and finally a pandemic — one with a much greater death rate than what we're seeing with the COVID crisis.
Ms Durrant gathered 17 senior engineers from Australia's key industries to war-game whether Australia's supplies could sustain the nation through a prolonged crisis, where global supply chains were severely disrupted. They asked, if they had basically a halt on global supply — a couple of steps more demanding than the current crisis — what would run out in one week, two weeks, one month or three months?" she said. We wanted to understand what was the thing we were most vulnerable in.
6 Prepare a Food Plan
Horticulture New Zealand has been arguing for some time for New Zealand to have a food security policy and plan (Chapman).
7 Change the Company Act to include Responsibilities for the Company and Directors for their Environmental Footprint. These should include
- A duty to act in a socially and environmentally responsible way,
- A duty to consider the likely consequences of any decision in the long term,
- A duty to consider the interests of the company’s employees,
- A duty to consider the need to foster the company’s business relationships with suppliers, customers, and other stakeholders,
- A duty to consider the impact of the company’s operations on the community and the environment,
- A duty to take into account best practice, validated standards of socially and environmentally responsible behaviour, and the science of impacts (and in particular the science of impacts on the environment through such measures as ecological footprints),
- A duty to assess and report on risks facing the company,
- A duty to develop a statement of purpose which takes all of the above into account, and is then developed into codes of conduct, polices and strategies and budgets,
- A duty to publish, at least annually, the statement of purpose, codes of conduct, policies, strategies, risk analysis, and budgets about the above duties, and actions taken to remedy (including engagement with companies where investments have been made), any deficiencies where interests and impact has not met best practice, validated standards of socially and environmentally responsible behaviour, and the relevant science (Howell Feb 2020).
Extend this to appropriate Government agencies (such as SOEs) and medium to large NGOs.
8 Investigate Reducing the Average Working Week
Peter Victor in developing a low grow model for the Canadian economy proposed reducing the average working week. The New Economics Foundation have also advocated for this.
Acknowledgements: Thanks to Martin Taylor for comments on an earlier draft.
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